What is OKR?
OKR is a goal-setting system whose acronym stands for Objectives and Key Results. Initially, it was Intel‘s concept, but it quickly spread to other Silicon Valley companies. This system has supported the growth of some of the hugely successful companies, such as Google, LinkedIn, and Twitter. OKR enables companies to align their teams’ tasks with measurable goals and to engage each team’s perspective. Sipod has also recently adopted this system and is proud to join the ranks of companies that are OKR users.
Unlike traditional planning methods, OKRs are set more frequently. They are tracked and re-evaluated on a quarterly basis to ensure that everyone is moving in the same direction and with clear priorities. OKR is an invaluable tool for setting and achieving goals and communicating progress and milestones. OKRs are versatile and can work across various industries, departments, and even personal goals, providing a consistent framework for setting and achieving objectives.
John Doer, one of the most successful venture capitalists of all time, pioneered this goal-setting methodology. His following formula is simple but vitally important in setting measurable goals.
I will _______(objective you want to achieve) as measured by ______ (key results you’ll use to measure progress).
As its name suggests, OKR consists of two components – The Objective and the Key Result. Let’s take a closer look at them both.
Objectives are qualitative, memorable descriptions of what you want to achieve. They should be short, inspirational, engaging, and motivate and challenge your team. Objectives should be meaningful, well-defined, and action-oriented. When the company sets up objectives correctly, they prevent confusion and ensure that efforts focus on achieving specific, measurable goals.
On the other hand, key results are the metrics that measure progress toward the objective. You should establish a set of 2 to 5 key results for each objective. Keep this number low to ensure that key results are easily memorable. Effective key results are specific, time-bound, aggressive yet realistic, measurable, and verifiable. You should check and grade the key results as fulfilled or not at the end of a designated period, typically a quarter. As the work progresses, key results evolve, and once they are all completed, you achieve your objective.
For example, an objective might be to increase brand awareness, and a key result to measure progress towards that objective might be to drive one million web visitors. Another objective might be to increase sales revenue. A key measure of progress towards that objective might be achieving a 15% increase in total sales revenue over the next quarter.
If we think about OKRs in terms of software development, we establish an objective of building high-performing software, which sounds great, but how will we know that the software is high performing? This is where we need key results. The key results for this example could look something like this:
- Achieve a 95% satisfaction rate from users on usability testing.
- Decrease the number of reported bugs per month from X to Y.
- Cut development time for new features by 50%.
Is OKR the same as KPI?
Comparing OKRs and KPIs is like comparing apples and oranges. They may seem similar, but they are fundamentally different concepts. OKRs and KPIs are tools used to evaluate performance, but they have different purposes and distinct characteristics. Let’s dive into the distinctions between OKRs and KPIs and how they can work together to achieve your organizational goals.
OKRs are a goal-setting framework that includes an objective to be achieved and a set of metrics, called key results, to measure the achievement of that objective. We typically set OKRs quarterly to align with organizational goals and ensure we make progress. Unlike KPIs, which we use to measure performance, we use OKRs to decide what needs to be changed or improved.
KPIs determine the factors needed to succeed in an organization. The purpose of KPIs is to measure performance, but they do not provide guidance on improving or driving growth. OKRs intrinsically encompass KPIs, and we use both concepts to identify target metrics that reflect company-wide priorities and core values.
What is a KPI?
KPIs identify the elements that are crucial for achieving success within an organization. A key performance indicator known as KPI is a tool we use to evaluate the performance of an organization, individual, program, project, or action over time. We usually link KPIs to strategic objectives, direct where resources should be focused, and measure against targets. It is essential to make KPIs measurable, making providing context and comparing performance easier. While you can create qualitative KPIs, we don’t recommend that as they can lead to confusion and subjective interpretations of data.
There are countless examples of KPIs across all industries, as they can truly be any quantitative measure you use to evaluate progress and reach goals. To get the gist of what KPIs are, these are some common KPI examples:
- Software development: code quality, bug resolution time, deployment frequency.
- Marketing Industry: traffic to a website, lead conversion rate, customer acquisition cost.
- Education Industry: student retention rate, graduation rate, faculty-student ratio.
What are the benefits of OKR?
While there are various goal-setting methodologies your team can utilize, OKRs can help align on flexible and measurable goals. One of the key benefits of OKRs is the ability to map multiple key results to each objective. OKRs can be adapted and customized to suit the needs of different companies and teams, allowing for flexibility in their implementation.
Once implemented, OKRs can lead to a range of positive outcomes and advantages within your company that we will discuss in more detail in the following paragraphs.
OKR’s agile approach, using shorter goal cycles, allows for quick adjustments and improved flexibility in the face of change. This not only fosters innovation but also minimizes risks and unnecessary expenses. Instead of adhering to traditional annual planning, OKR embraces a dynamic and responsive approach.
OKRs promote alignment and cooperation across teams by providing a shared framework for goal setting and progress tracking. OKRs ensure that all teams work towards the same overarching priorities and purpose by identifying interdependencies and unifying competing initiatives. This improves collaboration and helps the organization as a whole to function more effectively.
OKRs promote focus within an organization by limiting the number of goals and encouraging disciplined efforts and initiatives. This streamlined approach allows teams to unite behind a few priorities, resulting in increased organizational and personal motivation, productivity, and focus.
OKR is simple to implement and comprehend. Intel’s original model established monthly objectives. By utilizing OKR, companies can streamline the goal-setting process from months to days, allowing them to focus on achieving their objectives rather than just setting them.
OKR promotes transparency by clearly outlining employees’ priorities, expectations, and objectives. Its main aim is to align the organization’s efforts by making OKRs accessible to all company levels. This way, everyone has visibility into everyone else’s OKRs.
OKRs provide teams with a clear direction while allowing them the freedom to determine how to achieve their objectives. This creates a sense of responsibility and accountability, with success criteria known to the entire company. OKRs also enable teams and organizations to track their progress and adjust their tactics as needed. This helps to ensure that you make progress and meet objectives in a timely manner.
The OKR approach to goal setting, both bottom-up and top-down, positively affects employee engagement by connecting them with the company’s objectives. This approach, which is different from the traditional top-down cascading model, allows for a more efficient and faster process while also fostering a better understanding of the strategy among employees. As a result, employee engagement is increased as they feel more connected to the goals and objectives of the company.
OKRs empower teams to set ambitious, challenging goals by decoupling them from compensation and utilizing stretch goals. A stretch goal is a deliberately challenging objective that may not be attainable with 100% certainty. Such goals can help to push teams out of their comfort zones and drive significant, meaningful change. For example, aim to achieve approximately 70% of your stretch goals and use this as a valuable benchmark for setting future goals.
What are Nested cadences in OKR?
Using only short-term OKRs can cause teams to lose sight of the bigger picture and focus solely on achieving objectives within a three-month timeframe. Mature OKR implementations consider that different goals have different rhythms, as tactical goals tend to change much more frequently than strategic goals. To address this, OKR employs a nested model :
- A strategic cadence for high-level, long-term OKRs for the company (typically annual).
- A tactical cadence for short-term OKRs for teams (usually quarterly).
- An operational cadence for monitoring results and initiatives (usually weekly).
Even though we usually set strategic goals annually, they are not set in stone. The company should continuously discuss strategy and review the company OKRs as necessary.
OKR is a powerful goal-setting system and management tool that can benefit organizations in many ways. It encourages greater organizational and personal focus, motivation, and productivity while allowing individual employees to see their role in achieving long-term goals. The OKR system is intended to align tasks and goals and not to evaluate employees’ performance. OKRs are versatile and can work across various industries, departments, and even personal goals, providing a consistent framework for setting and achieving objectives.